ECON101: Principles of Microeconomics

Unit 3: Markets and Individual Maximizing BehaviorThis unit will examine the ways in which markets increase overall
welfare through the concepts of consumer and producer surplus. We will
discuss the concepts of marginal costs and benefits and take a look at
how they affect a firm’s decision on whether or not to make one more or
one less product.

We have already learned that, at its most fundamental level,
microeconomics is the study of how we make decisions. To expand on this
point, we need to distinguish between the “either/or” decision and the
“how much” decision. You will find this concept useful when looking
more closely at why firms produce certain levels of output, taking into
consideration opportunity cost and sunk (fixed) cost.

Unit 3 Time Advisory
This unit should take approximately 5.25 hours to complete.

☐ Subunit 3.1: 2 hours

☐ Subunit 3.2: 2 hours

☐ Assessments: 1.25 hours

Unit3 Learning Outcomes
Upon successful completion of this unit, the student will be able to:
- Identify the maximizing behavior of individuals in the market.
- Identify the behavior of individuals when markets fail.

Instructions: Read section 1 to revisit the concept of Marginal
Costs and Benefits within the context of the consumer’s (and the
firm’s) maximizing behavior. Proceed to section 2, which defines
two new concepts: “Consumer Surplus” and “Producer Surplus.” Please
take a moment to read through the stated learning outcomes for this
chapter of the text, which you can find at the beginning of each
section. These should be your goals as you read through the
chapter.
Reading these sections should take approximately 1 hour and 30
minutes.
Terms of Use: The text was adapted by The Saylor Foundation under a
[CreativeCommons-Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the work's original creator or licensee.

Instructions: Watch this video about how an apple farmer decides
the optimal number of apples to pick. At the end of the video,
consider whether or not the government should intervene. Think about
which arguments you might make both supporting and disagreeing with
the government acting in the market. In 3.2, we will cover specific
ways the government might participate in the market.

Watching this video and pausing to take notes should take
approximately 5 minutes.

3.2 When Markets FailNote: “Market failure” refers to a situation in which there is an
inefficient allocation of goods and services in the market. Inefficient
allocation takes place when pure self-interest drives the maximizing
behavior of economic agents. Market failure is attributed to the
existence of Externalities, Common Property Resources, Public Goods, and
Asymmetric Information. Market failure often leads to government
intervention designed to drive the market towards efficiency.

Reading: State University of New York at Oswego: Professor John
Kane’s Lecture Notes on ECON 101: “Chapter 14: Government and Market
Failure”
Link: State
University of New York at Oswego: Professor John
Kane’s Lecture
Notes on ECON 101: “Chapter 14: Government and Market
Failure” (HTML)

Instructions: Please follow the link to get to the main page of
Econ100. Click on the “Quiz” tab on the left hand side menu and
then go to Chapter 18 to take the test. Please attempt levels 1 and
3 of the quiz for a thorough assessment of your understanding of the
material covered in this unit.

Completing this assessment should take approximately 45 minutes.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.